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Finance · level 1

Multiples and the equity bridge

Multiples are one multiplication; the trap is the bridge. Enterprise value belongs to everybody, equity value only to shareholders — net debt is the difference.

Theory: Valuation

Worked example: EBITDA $280M at 10× EV/EBITDA. Enterprise value?

EV$2.8B
net debt−$20M
equity value$2.82B

Step by step

  1. 1

    Enterprise value

    $280M × 10 = $2.8B

  2. 2

    Bridge to equity

    $2.8B − $80M debt + $100M cash = $2.82B

  3. 3

    Direction of the bridge

    EV → equity: subtract net debt. Equity → EV: add it back.

EBITDA $280M at 10× EV/EBITDA. Enterprise value? = 2,800,000,000

The theory behind it

Intuition

A multiple is a shortcut for a DCF: EV/EBITDA embeds growth, margin and risk in one number, which is why comparability matters more than precision.

Common pitfalls

  • ×Dividing enterprise value by an equity-level metric such as net income.
  • ×Ignoring net debt in the EV-to-equity bridge.

In the interview

The fast valuation you give before anyone opens a model.